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RSS By: Alan Brugler, AgWeb.com

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Dead Cat Bounce, Or Big Turn?

Dec 12, 2008
Corn lost 16% of its value last week. This week it was up 22%. That’s a simple illustration of the wild and wooly world of commodities prices. Futures were dragged down by a strong dollar and weak export sales. USDA threw additional bearish news at the market on Thursday, dropping ethanol corn use by 300 million bushels and dropping exports by 100 million bushels. They hiked feed use by 50 million, for a net increase in ending stocks of 350 million bushels to 1.474 billion. They even dropped the estimated cash price by 40 cents per bushel. The good news is that despite the bad news, futures closed higher on the day. They also extended the rally on Friday, aided by a weakening US dollar and what was perceive to be a low corn acreage estimate for 2009 by a private firm. Now we’re trying to figure out if this is yet another dead cat bounce in a steeply down trending market, or if it is the beginning of the much awaited post harvest rally.
 
Below is a table showing the net weekly change of selected agricultural futures contracts:
 
Market Watch
 
 
 
 
 
 
 
 
 
 
 
Wkly
Wkly
 
21-Nov
28-Nov
5-Dec
12-Dec
Change
% Change
March Corn
$3.54
$3.66
$3.06
$3.73
0.67
22.03%
March CHI Wht
$5.18
$5.64
$4.76
$5.13
0.37
7.72%
March KC Wht
$5.49
$5.82
$5.03
$5.38
0.35
6.91%
March MGE Wht
$5.92
$6.11
$5.51
$5.90
0.39
7.08%
Jan Soybeans
$8.40
$8.83
$7.84
$8.54
0.70
9.00%
Jan Soy Meal
$250.50
$254.30
$238.30
$257.70
19.40
8.14%
Jan Soy Oil
$31.46
$33.34
$28.93
$30.92
1.99
6.88%
Dec Live Cattle
$84.90
$87.38
$81.55
$83.32
1.77
2.17%
Jan Feeder Cattle
$89.40
$91.70
$86.65
$87.17
0.52
0.60%
Feb Lean Hogs
$64.10
$67.03
$64.20
$62.28
1.93
-3.00%
March Cotton
$41.56
$48.00
$41.52
$43.34
1.82
4.38%
March Oats
$2.17
$2.17
$1.99
$2.13
0.14
7.24%
Jan Rice
$13.32
$13.35
$14.13
$14.90
0.76
5.41%
 
Wheat futures were higher at all three exchanges, but hampered by their use as the short leg of inter-market spreads. USDA also increased projected ending stocks by 20 million bushels, showing 10 million bushels more in imports from Canada. They also cut projected food use by 10 million bushels due to higher flour yields.
 
All three legs of the soybean complex were higher. Meal rose with assistance from the higher corn and wheat markets, reduced DDG competition, and USDA’s expectations for an even smaller 2008/09 soybean crush. Soy oil rose on a bounce in the energy futures, which benefitted from a weaker US dollar. With the products higher, beans were free to bounce. USDA left ending stocks UNCH at 205 million bushels, with lower crush use cancelling out larger exports.
 
Cotton futures saw a nice 4.4% bounce for the week despite bearish USDA numbers on Thursday. USDA reported the sharpest expected year/year drop in world cotton consumption since World War II. That included further cuts in projected US exports and domestic mill use. That didn’t matter during a week where short covering was in vogue, and the dollar was weaker. It was also a case of “sell the rumor, buy the fact” with most of the report changes anticipated prior to the report.
 
Cattle futures managed to claw out a $1.77 gain in the nearby December contract, despite considerable selling pressure in the wholesale beef market. Cash cattle trade was down in line with the wholesale, as mid-week trades were in the $83-84 range. Plains trade on Friday afternoon firmed to $85, down $1-2 from last week. December futures continue to be at a discount, settling at $83.32.
 
Hogs were the sole loser for the week, down 3% in the February contract. December expired at $56.025 after marking time for a couple weeks while the CME cash index rallied. The lean pork cutout held above $60 for the week, thanks to strong pre-Christmas ham demand. Weekly slaughter had been expected to be well above year ago in the 4th quarter, but the numbers have been holding close to year ago. USDA is still calling for total 4Q production to be record large.
 
Market Watch: Now that the main USDA report for the month is out of the way, the market has a little more tidying up to do before traders can get into full holiday mode. The fall out from December futures expirations begins on Monday, with some sizeable expiration gaps on the corn and wheat charts. NOPA will release its monthly soybean crush estimate on Monday. Census is expected to release their monthly Crush and Cotton Consumption reports on Thursday, a little earlier than usual in the month because of Christmas falling on the following Thursday. On Friday, USDA will issue the monthly Cattle on Feed report.
 
There is a substantial risk of loss in futures & options trading. Past performance is not necessarily indicative of future results.
 
Copyright 2008 Brugler Marketing & Management LLC. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited. Call 402-697-3623 for information on Ag Market Professional or SRR subscription information or visit the web site @ www.bruglermktg.com.
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